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The promise of a “Global Britain”

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Created: 03 January 2017

Free Trade Agreements: the new path towards a “Global Britain”

Since July 2016 - shortly after the Brexit vote - UK Trade and Investment has been replaced by the Department of International Trade who will focus on negotiating new trade deals. Even though the UK government cannot formally negotiate or sign any trade treaties until it has left the EU - informal preparatory talks, initial agreements and working groups will take place.

Trade deals are complicated to negotiate and take years to be concluded, but the benefits can be substantial and enduring. They are the best way to open up foreign markets for exporters thanks to reduced trade barriers and more stable and transparent trading and investment environments.

Theresa May promised a “global Britain” during her speech at the 2016 Conservative Party Conference following Britain’s 23 June vote to leave the EU. With this she took the caution to show the anti-EU vote will not be taken towards global disengagement. And indeed, the United Kingdom has a long history of promoting global trade liberalisation and there is no reason why this would be different in a post-Brexit future. Leave campaigners have been arguing that being in the EU, trade was focused on European countries. According to them, the UK has left behind former ties, which can now be strengthened again. On the opposite side remain campaigners are now fighting for the UK to stay in the single market. This has however potential to be a major political mistake. The Brexit vote was overall a desire “to take back control over the borders”, but the EU does not seem to want make any concessions on the free movement of people.

Recent state visits and meetings have made it obvious that the British government is not only focusing on its new relationship with the European Union – even though it is a leader in global free trade – but that the UK is actually trying to integrate “in the wider world”.

Australia: UK’s first bilateral trade working group

UK’s International Trade Minister, Lord Price and Steven Ciobo, Australia’s Minister for Trade, Tourism and Investment met in Canberra on the 30th November 2016. Australia is the first country to form a bilateral trade working group since UK’s referendum to leave the EU. Discussions not only focus on a future Australia-UK free trade agreement, but also on other trade policy issues of mutual interest, including WTO processes and current and prospective plurilateral negotiations.

Diplomatic relations between the two countries are very good and they share an extensive economic, trade and investment relationship. Australia is a major trading partner of the UK: according to the World Bank UK exports to Australia were worth over $5,183,000,000 and imports worth $2,881,054,000 in 2015. In this bilateral relationship, services trade is an important element, as the UK was Australia’s third largest export market in 2014-2015. The UK is also Australia’s second largest source of foreign direct investment and the second destination of Australian wine exports. It came therefore as no surprise that Australia has been one of the first nations to express its interest in a free trade agreement with Britain publically.

USA: With Donald Trump the UK will not be at the back of the queue anymore

Britain is the USA’s closest political, commercial and military ally. Having their closest ally in the European Union gave the US confidence that British influence could align the EU more closely with US foreign policy objectives. The two countries also have similar policies towards the free market and being open to trade. Furthermore, the UK and the USA share the world’s largest bilateral foreign direct investment and Britain is one of the largest markets for US exports and one of the largest suppliers of US imports.

However, in the aftermath of the Brexit vote, US President Barack Obama gave little hope for a quick post-Brexit trade deal. Even before the referendum he warned that the UK would be at the “back of the queue” for trade talks. His focus was on negotiations with the European Union and obviously the transatlantic trade and investment partnership.

With the election of Donald Trump, hope for a quick trade deal with the USA has emerged again. The president-elect has made it very clear that he wants to quit the Trans-Pacific Partnership trade deal, but has shown willingness towards trade negotiations with the United Kingdom. He has praised Brexit and has been supporting leave-campaigners since the beginning.

Colombia: Ready to pursue new opportunities with the UK

In Latin America the UK’s decision to leave the European Union has not been seen with indifference, but fears about how much their respective economies could suffer under Brexit are very limited. Even though British investments in Latin America are in some cases higher than compared to other European countries, they are far from being as important as investments from the United States. Accordingly Brexit will neither be a challenge for most Latin American countries, nor a major opportunity. The only exception could be Colombia.

The UK is the second largest investor in Colombia after the United States. In 2015, UK exports of goods to Colombia represented over $551,578,000, of which the main products were whisky, pharmaceuticals, machinery and chemicals. Between 2009 and 2013 UK exports to the country increased by 126%. Reversely, Colombia only sent 2.5% of its exports to the United Kingdom.During his state visit on the 3rd November 2016, the Colombian president Juan Manuel Santos and Theresa May discussed Colombia-UK relations and the prospect of new trade agreements between the two countries. Juan Manuel Santos confirmed that his country wants to continue boosting trade with Britain after the country has left the European Union. In the past the UK and Colombia have cooperated closely together in to bilateral trade, intelligence sharing and law enforcement. Today Colombia is one of Latin America’s strongest economies, but it could face an economic slow-down following the recent rejection by the population of the FARC-peace agreement and the loss of oil-related fiscal revenues.

India: The UK to succeed where the EU failed?The British press and the government are insisting that they are having the chance to create stronger ties with Commonwealth countries such as India, a view which is not necessarily shared by all citizens and politicians of the respective countries.

During Theresa May’s 3-day trade mission to India earlier in November, she managed to sign business deals worth 1 billion pounds, but failed in her mission to put pressure on Tata to protect the jobs of its UK steelworkers, as she did not manage to meet with senior figures from the Tata Group. Another major goal of the visit was, of course, to prepare the way for a future trade deal. However, this has also partly failed.Indeed, UK’s immigration policy – especially on the restriction of visas for Indian students – has caused a crack in the India-UK relationship. And during May’s visit Prime Minister Narendra Modi made it clear that UK’s government approach on immigration was going to be an obstacle during any future free trade agreement talks.

In an interview on Radio 4, Lord Bilimoria – the Indian-born chairman of Cobra beer – emphasized that Indian companies invested in the UK, because it was a safe bridge to enter the EU. As the UK is leaving the European Union, it will be seen as a less important trading partner. Also Prime Minister Narendra Modi expressed concerns about the UK leaving the European Union long before June 2016. India’s place in the world hierarchy has substantially changed and the country is aware of its stronger position. Thus India is more unlikely to give in to concessions. An example of this have been the talks about a free trade agreement with the European Union. In June 2007, India was keen in starting negotiations on an EU-India Broad-based Trade and Investment Agreement. In fact, the EU is India’s biggest trading partner, representing 13% of India’s overall trade with the world between 2014 and 2015. India’s exports to the EU represented €39.4 billion in 2015 according to the official trade statistics of the European Commission. Nevertheless in summer 2013 due to a mismatch of expectations negotiations were stalled. The resumption of the talks took place in March 2016, but the outlook is uncertain.

By analysing why the EU failed, the UK could succeed in signing a free trade agreement with one of the world’s fastest growing economies. However, it will not be sufficient for the UK to only appeal on common culture and history. If the UK wants to become India’s closest trading partner, India needs to feel that it is treated as an equal partner and the UK must be willing to consider compromises – including on immigration.

Gulf States: the human rights-hurdleTheresa May’s recent attendance at the Gulf Cooperation Council summit in Bahrain showed her eagerness in forming a new trade agreement between the Gulf and the UK.

The Gulf region is UK’s largest investor and UK’s second biggest non-European export market. The six countries of the Gulf Cooperation Council have a combined GDP of $1.4 trillion. Despite economic stagnation due to dropping oil prices, there is still lots of business to do for UK companies in the oil and gas, construction and consumer goods sector. Britain exported around £10 billion worth of goods in 2015, which is three times more than what the country sells to India and more than what it has exported to Latin America and the Caribbean combined.

During any future trade negotiations, the biggest hurdle will be to find an agreement on defence. The UK has the largest aerospace industry in Europe and the second largest in the world. It is a major supplier to defence equipment to the Gulf States, where Kuwait, UAE and Saudi Arabia are considered as priority markets.

According to a joint report published on the 15th September 2016 by the department for Business, Innovation and Skills and the International Development Committee, defence exports with a value of £1.7 billion for combat aircraft and of more than £1 billion for air-delivered bombs were licensed to Saudi Arabia between April and December 2015.

The problem is that during this period Saudi Arabia has conducted a military intervention in Yemen to support former president Abd Rabbuh Mansur Hadi. The intervention, which was supported by the United States received widespread criticism mostly from Arab League nations and Western governments. The conflict has escalated into a humanitarian disaster: civilian areas and medical facilities have been targeted and 80% of the population is now in need of aid. The joint report has thus denounced the UK’s arms supply to Saudi Arabia, which infringes International Humanitarian Law. Arms exports to Saudi Arabia could now be suspended by a British court, which would reflect negatively on the UK-Gulf Cooperation Council relationship.

Saudi Arabia is not the only Gulf State being in the spotlight for human rights issues. Concerns already caused the suspension of the EU-Gulf Cooperation Council free trade agreement in 2008. If the UK wants to sign a trade deal quickly, it will probably have to ignore the subject.

Conclusion

Theresa May and Liam Fox want to show that the UK is able to “integrate into the wider world” while being outside the European Union. Thus the government finds itself under pressure to sign free trade agreements. Third countries could feel they are in a good negotiating position as the UK lacks experienced trade negotiators – it has not conducted its own trade negotiations since 1973. Another major hurdle is that the majority of countries want to know first about Britain’s future trade relation with the EU, before engaging in any preparatory talks.

Whether Britain is going to choose hard or soft Brexit will highly influence on future trade deals with non-EU countries. In the past, the UK has been used as a safe gateway into the EU. With Britain being outside the EU, the country might not be as attractive anymore as it used to be for foreign businesses.

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